It has been a 10-year wait and one could say it was worth the wait. JP Morgan’s decision to include India in its bond index is expected to help attract $30 billion in foreign investment over time.

Early on Friday, the Indian bond market awoke to the news that JP Morgan would include select Indian government bonds into its emerging bond market index.

Bond prices surged. But the rise proved to be short-lived because the inclusion would happen only next year, in June.

There were more immediate concerns in the form of hawkish central banks.

The US Federal Reserve announced a hawkish pause in interest rates earlier last week. Top officials of the Fed indicated that they would prefer to hike interest rates again before the end of 2023.

They also indicated that rate cuts projected for next year will be 50 basis points lower than what they had projected in June.

The markets were concerned that interest rates would be high(er) for long(er), and whenever the Fed cut interest rates, it would be shallow.

With the Fed remaining hawkish, even the Reserve Bank of India is expected to avoid hasty interest rate cuts.

Stocks fell sharply this week.

Indian Markets Last Week:

Stocks fell Friday, and the benchmark, Sensex, suffered its worst week in fifteen months due to concerns that interest rates in India will remain high for a long time. A note from Kotak that said there are headwinds for Indian stocks dampened the sentiment. It was also felt that the market was in a consolidation mode after posting big gains in the last few months.

Bond yields retraced an early fall on Friday to close higher and little changed from the past week. Yields fell sharply early on Friday after JP Morgan said it would include Indian bonds in its index from next year. Weaker-than-expected demand at the weekly auction and concerns that central banks in India and the US won’t cut interest rates in the near future got the yields to correct.

The rupee rose for the week after rising sharply on Friday after JP Morgan’s announcement of inclusion of Indian bonds in its index next year. The rupee rose past the 83/$1 mark. The index inclusion is expected to bring in $30 billion in into India over time. The rise in oil prices capped the strength in the rupee.

Global Markets Last Week:

US stocks reported weekly losses after volatile trading sessions and tracked benchmark treasury yields that reached a 16-year high. S&P, Nasdaq reported their biggest fall in percentage terms on a weekly basis since March as investors processed the Federal Reserve's revised hawkish stance.

US treasury yields dipped Friday after reaching a 16-year high during the week as the Federal Reserve maintained a hawkish stance at its policy meet. The US central bank projected fewer rate cuts in 2024 than it expected previously and said it may raise rates one more time this year to bring inflation closer to its 2% annual target.

US dollar posted a weekly gain against a basket of major currencies after the global economic activity figures showed the US superiority over other major economies. S&P Global reported that flash US Composite PMI index narrowly exceeded the 50-level mark in September that separates expansion and contraction. The latest data from Europe showed that economic activity slowed more quickly than expected in France.

Corporate Bonds

Secondary Market

Yields ended marginally down on a weekly basis on the view that the inclusion of Indian government bonds in the JP Morgan Index next year would reduce the cost of capital for corporate bonds as well. Banks and insurance companies were active buyers in the secondary market.

Outlook For This Week

This week, stocks are expected to continue weakening due to corrections. There are concerns over profitability due to high interest rates. Yields could be steady to slightly lower after JP Morgan’s move. The rupee could weaken due to high oil prices although dollar sales by the RBI could limit the fall.

In Other News

• Govt bonds' JP Morgan index inclusion to boost rupee, help finance CAD: CEA
• India's forex reserves near 4-month low; decline $867 million to $593 billion
• Indian economy to grow at 6.5% for FY24: Finance Ministry
• Robust digital infrastructure helped govt save over $27 billion: DEA Secy
• Parliamentary committee seeks annual review of ESIC investment policy
• PC, laptop import restrictions: Govt hints at breather; no date for curbs
• US Federal Reserve cutting staff after more than a decade of payroll growth
• Amazon-CCI row: Respite for e-commerce giant as SC schedules hearing for Dec
• Rice, cane lift acreage of kharif sowing past 2022 level
• iPhone 15 sales take off, but top models in short supply
• US says it expects India to work with Canada on murder case
• Tesla proposes building battery storage factory in India.
• Japan's August inflation stays above BOJ target for 17th month
• India's Delta Corp gets tax notice for $1.34 billion
• India's Go First says airline's revival could be derailed by lessors' demands